The Rise and Fall of Digital Equipment Corporation

Digital Commons @ Assumption University Management, Marketing, and Organizational Management, Marketing, and Organizational Communication Department Faculty Works Communication Department 2019 Technology Change or Resistance to Changing Institutional Logics: The Rise and Fall of Digital Equipment Corporation Michael S. Lewis Assumption College, [email protected] Follow this and additional works at: https://digitalcommons.assumption.edu/business-faculty Part of the Business Commons Recommended Citation Lewis, M. S. (2019). Technology Change or Resistance to Changing Institutional Logics: The Rise and Fall of Digital Equipment Corporation. The Journal of Applied Behavioral Science . https://doi.org/10.1177/ 0021886318822305 This Article is brought to you for free and open access by the Management, Marketing, and Organizational Communication Department at Digital Commons @ Assumption University. It has been accepted for inclusion in Management, Marketing, and Organizational Communication Department Faculty Works by an authorized administrator of Digital Commons @ Assumption University. For more information, please contact [email protected]. 1 Technology Change or Resistance to Changing Institutional Logics: The Rise and Fall of Digital Equipment Corporation Michael S. Lewis Assistant Professor of Management Assumption College 500 Salisbury Street Worcester, MA 01609-1296 Telephone: 508-767-7372 Fax: 508-767-7252 [email protected] Abstract This article uses an institutional lens to analyze organizational failure. It does this through a historical case study of Digital Equipment Corporation, an innovator and market leader of minicomputers who faltered and eventually failed during the period of technological change brought on by the emergence of the personal computer. The failure of Digital Equipment Corporation is interesting because it occurred despite its ability to adapt to changing technological forces. An institutional analysis shows that while Digital Equipment Corporation was able to develop personal computers widely considered technologically superior to its competitors, it resisted broader changes occurring in its institutional context. This study suggests that responding to external forces of change, such as technology, may not be enough. An organization must determine if and how such change might lead to a shift in its institutional context and then develop strategies to address such change. Keywords case study, Digital Equipment Corporation, technology change, institutional change, institutional logics, organizational failure 2 Organizational failure has received considerable attention over the decades (McKinley, 1993; Munir, 2005; Kam, 2005; McGovern, 2007; Mackie, 2012; Oertel, Thommes, & Walgenbach, 2016). What organizational failure is and how it occurs is complex, although an ability to anticipate and adapt to environmental changes has become a central focus in the literature (Weitzel and Jonsson, 1989). Technology change as an external force has received particular attention. It has been theorized as disruptive (Christensen, 1997), competence- destroying (Tushman & Anderson, 1986), impacting processes (Abernathy and Utterback, 1978), and obsoleting business models (Teece, 2010). In many of these models, technology change is seen as a threat to those organizations who are unable to adapt, leading them to irrelevancy or even failure. The message is clear—adapt to technological change or risk failure. But how does one explain failure when an organization is able to adapt to technological change. This article explores such a case and proposes that organizational failure may be better understood through institutional analysis. It does this through a historical case study of the rise and fall of Digital Equipment Corporation, the inventor and market leader of the minicomputer that later faltered and eventually failed during a period of technological change brought on by the personal computer. By all accounts, Digital Equipment Corporation quickly adapted to this technology change and developed a line of personal computers that was widely considered to be technologically superior to other personal computers in the market. Yet, Digital Equipment Corporation still failed. The answer to this puzzle and contribution of this article is in the changing institutional context that occurred during the emergence of the personal computer. In perhaps the only other academic study of Digital Equipment Corporation, Edgar Schein and colleagues pointed to its culture as being primarily responsible for its rise and fall (Schein, DeLisi, Kampas, & Sonduck, 2003). As an organization evolves, it needs to be able to 3 adjust and shift its culture to fit the predominant issues and challenges of that particular period in its life cycle. Digital Equipment Corporation, according to Schein et al., was unable to make this shift. While an important contribution toward understanding change, this perspective largely focuses on the organization and misses the key changes occurring in the environment and broader institutional context. This article seeks to add this perspective. It argues that culture and particularly technology change per se are not the primary cause for Digital Equipment Corporation’s failure. Rather, it is a shift in the dominant institutional logics brought on by technology change, and Digital Equipment Corporation’s resistance of this shift that led to the organization’s demise. Following a brief review of the literature on technology change, organizational capability, and institutional logics. Research methods of this study are then is presented followed by a historical account of the rise and fall of Digital Equipment Corporation, done through the lens of institutional change. An analysis of Digital Equipment Corporation’s failure is then presented followed by implications for practice. This article concludes with suggestions for future research. Technology Change Technology change is an external force that can jolt an institutionalized field into a state of flux or destabilization (Hinings, Greenwood, Reay, & Suddaby, 2004). These jolts are difficult to anticipate and can threaten an organization’s viability (Meyer, 1982). This is particularly challenging for an incumbent because technology change goes beyond the technology itself and impacts products, processes, markets, value propositions and business models (Tripsas, 2009). The literature of technology change is consistent with the broader change literature, categorizing modes of change as either incremental or discontinuous or radical. Incremental is first-order 4 change that supports and strengthen an organization’s existing structures and competencies, while discontinuous is second-order change that poses a threat to those structures and capabilities (Tushman and Anderson, 1986; Bartunek & Moch, 1987; Meyer Brooks & Goes, 1990). The punctuated equilibrium literature was introduced as an integration of the two depicting change as long periods of incremental improvements that are punctuated by discontinuous breakthroughs (Tushman & Anderson, 1986; Gersick, 1991). This model has also been depicted as an S-curve, where existing technology incrementally grows until it reaches its natural limit, which is then overtaken by new technology causing discontinuous change (Foster 1988). In these conceptualizations, incumbents are theorized as having advantages during periods of incremental change but are at risk during periods of discontinuous change. During these periods of discontinuous change, an organization’s product lifecycle could end quite suddenly (Utterback, 1994), find its existing capabilities irrelevant (Tushman and Anderson, 1986), and its business model obsolete (Teece, 2010). Creating new product classes using new technologies can be risky for incumbents as it is a fundamentally different activity than incrementally improving and supporting what already exists. It requires different skills, processes, and activities (March, 1991; Boumgarden, Nickerson, and Zenger, 2012) and the tension between exploring new products and exploiting existing ones becomes a major organizational challenge (Andriopoulos and Lewis, 2009). This may explain why incumbents tend to use exploitation as a way to protect itself from new entrants but then become threatened when exploration creates discontinuous technological change. Technology Change and Organizational Capabilities Technology change can significantly impact an organization’s capabilities. This can have strategic consequences in terms of an organization’s ability to adapt to change. An organization’s 5 core capabilities is what strategically differentiates itself from competition (Leonard-Barton, 1992). It is considered a set of differentiated skills, asset, and routines that become a basis for a firm’s competitive advantage (Teece, Pisano, & Shuen, 1990). When technology changes, these advantages may no longer be sustainable. Core capabilities are developed to exploit the status quo (Christensen and Overdorf, 2000) through consolidation and higher barriers of entry (Tushman & Anderson, 1986). Exploiting industry-specific capabilities also increases the likelihood that incumbents are able to exploit technology within that industry (Mitchell, 1989). But core capabilities become institutionalized, which leads to inertia, which leads to a paradox of core capabilities simultaneously enhancing and inhibiting an organization’s development (Leonard-Barton, 1992). In other words, change can enhance an organization’s

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